"In individuals, insanity is rare; but in groups, parties, nations and epochs it is the rule" – Nietzsche

Has wall street “Abstracted” itself from america?

I have been exceedingly fortunate in my career to have met and spent considerable time with some of the big hitters in global finance, some now disgraced and others who remain in the Market Wizards pantheon. It is still the case, however, that the most impressively brilliant human being I’ve ever consistently been around is a Philosophy of Literature professor who’s name, while it deserves to be mentioned, in the interest of my continued anonymity I’ll change to SOAT – Smartest of All Time.

One of professor SOAT’s primary influences on me was an explication of the now-consensus view that the Protestant Reformation was an outgrowth of movable type and the printing press. Mass printing of bibles ended the Roman Catholic church’s monopoly on biblical interpretation and individual clerics, led by Martin Luther, used their intellectual freedom to begin a series of revolutions against an unfathomably corrupt Catholic Church. The True Church quickly became five – add Lutherans, Calvinists, Anabaptists, and Anglicans – which begat a whole host of eventual spin-offs including Puritans, Pietists, Baptists, Congregationalists and Republicans Luddites. For our purposes it is only important to remember that A) a media explosion started the whole thing and B) By the mid 17th century the entirety of Western Europe had split into heavily armed camps ready to stab and/or roast anyone who disagreed with them.

If I’m ever going to get to my conclusion, the concept of Abstraction in Computer Science will also have to be described in brief. When Bill Gates wrote the precursor of Windows, it was in machine language, the series of 1s and 0s that hardware understands without a translator. When we recognize that the word “START”, for instance, had to be entered in pencil, on little cards, as “01110011011101000110000101110010011101000000110100001010”, it is not difficult to understand what an excruciating process this must have been. Abstract programming languages, those that act on machine code without the author having to know machine code, alleviated the problem. Further languages acted on the level two programming language and so on and so on until modern languages like Java and C+ are now five or six steps away from machine code.

The closest metaphor I can think of for this abstraction principle is biological, with the doctor as machine code writer and nurses, pharmacists, medical equipment designers and drug company researchers as somewhat analogous to the abstractions. The latter act on complex segments of the whole without holistic understanding. So, we understand the thankfully misplaced freakout over Y2K as an outgrowth of the problem that very few current programmers were capable of working at the machine code, lower languages. If the screw-ups occurred at those lower levels there wouldn’t be enough “doctors” to prevent a global epidemic where pharmacists would be completely unhelpful.

Those few of you still reading are wondering why I just subjected you to a medieval history lesson and a description of a systems concept that was last really important eleven years ago. It is to posit this: Wall Street and the financial industry as a whole has profitably “abstracted” itself from the lives of the average American and that the Internet, as the modern equivalent of the Gutenberg Bible, is the primary catalyst for the OWS backlash. Finance, after all, facilitates economic activity but in a tangible sense produces nothing. Industry employees certainly go grocery shopping and buy cars, but for them the daily lives of people employed in the slaughterhouse or the auto assembly plant are obscure to the point of theoretical. The lack of empathy displayed by financial leadership, while regrettable, is not that hard to understand in this interpretation nor is the vehemence of their defense of the status quo.

The printing press/Internet equivalence is largely self-evident. Sudden, all encompassing changes in mass media consumption have through history caused major social upheaval. (The television/60s relationship works here also). Contrary to intuition, these technological changes that allow exponentially higher levels of individual participation in cultural discourse can result in the paradoxical effect of splintering away from the whole into like-minded, dogmatic sects – formerly the formation of new churches and armies, now evident in the cocooning effect that fertilizes the OWS movement and others.

I have no conclusion here, its just my way of trying to understand current events. I have no doubt made errors in representing the programming analogy (its not my area, clearly) and stretched some historical precedents too far. I don’t, for what its worth, expect 200 years of armed, theological/political conflict. But the analogies interest me greatly and possibly above all other blog posts I will write, I welcome corrective feedback and discussion on this one.

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24 thoughts on “Has wall street “Abstracted” itself from america?”

Y2K was not an event only because an alarm was sounded with enough time for action. Involved professionals made a maximum effort to correct all the software and control device problems and had necessary changes and corrections in place well before the critical moment. The alarm that most of us remember was a ‘just in case’ for the uncertainties about what might have been missed.

But, 17th century (and 21st century) Europe did not have our Constitutional republic. From Federalist 10.

“…the most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society. Those who are creditors, and those who are debtors, fall under a like discrimination. A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests, grow up of necessity in civilized nations, and divide them into different classes, actuated by different sentiments and views. The regulation of these various and interfering interests forms the principal task of modern legislation, and involves the spirit of party and faction in the necessary and ordinary operations of the government.”

All due praise to the Founding Fathers for creating a mechanism for our factions to interact peacefully.

would love to see an analysis making the abstract more concrete, something like this: that credit grew faster than the economy for decades with a declining marginal net benefit. The industry took increasing fees for its extension of credit which was producing a decreasing benefit for society. These fees paid disproportionate wages, where arguably shareholders even got screwed at today’s valuations. Without abstraction, how could all this be possible? (and this is leaving out costs of the crisis). Thanks for the post.

Wait, though. Credit, like Dutch shipping insurance boom helped global trade, can be a very positive force for Eco growth. Only bad when goes too far, and even then only a temporary problem as long as the miscreants are allowed to fail.

Would you consider the telegraph (+stock ticker) a similar analogy to the printing press or internet? If you look at the boom just before the rich man’s panic in 1907, there was a huge M&A boom lead by railroad stocks (telegraph lines installed alongside train tracks), financed by new, quickly growing, less regulated “trusts”. There was also a growing distrust of government, discontent w/ “robber barons”, and the growth of new forms of media.

Interesting question. Telegraph did help finance “own” information ahead of outsiders. In the end, though, I don’t think usage was widespread enough to cause same type of cultural volatility. Would have to read more.

According to James Gleick in his recent book on information, the telegraph made people aware of time as happening simultaneously somewhere else. He mentions the example of an early new years eve celebratory cable sent by one operator to another some miles down the line, only to get the reply that midnight was still a minute away. Time was local and that people lived their lives simultaneously took decades to be accepted.

Very interesting subject indeed. I think another way of putting it is that as you lower the cost of information and communication (books, pamphlets, telegraph, telephone, radio, tv, PC internet, mobile/cloud internet) you qualitatively change the scale between minority and majority. Clearly the abstraction of technology helps minorities (small markets) get to critical mass from which they can stand on their own. Without literacy even major subjects such as mathematics would never have developed as the few who found out the beginnings on their own, would need a lot of luck in meeting like minded people (including the unborn). Of course there is always a loss with any abstraction but isn’t it fascinating how we can sit on opposite sides of the world and discuss such a niche subject almost as if we were speaking to one another?

I think the computer industry has initiated 3 seperate upheavals much like the printing press and I worry that you are mixing them up a bit.

The first surrounds the way trade is performed, allowing certain efficiencies and a reduction of stock such that traditional retailers have struggled to match overhead costs. There is only so far this revolotion can go because you cannot smell, feel the texture, see the real colours, judge the size over the internet and as a result I think this particular upheaval is settling down.
The second is around speed and flexibility of communication. Here I am thinking of facebook, twitter and the like where events can be communicated and spread vastly more quickly than they would have before. This is an upheaval because it means abuses of power,and undesirable changes can be thwarted very quickly. It means those in power become far more answerable for their actions and there are those who will not adapt and sell their ideas before acting. On the other side you could argue that it almost freeze decision makers into inaction.
The third is around the decentralisation of information. No longer can somebody bluff their way through things, skip detail or selectively use information for their own ends without getting caught. Those who have abused knowledge and power in the past have been caught out repeatedly as a result. The age of dumbing down and treating people like sheeple is over and will most likely affect all forms of media and result in those who abuse power being thrown to the wolves.This I think will be the biggest upheaval, will take a long time and result in quite a few falling to the pitch fork.

OWS I think is part of this rather than a seperate issue, although it is throwing out some interesting ideas about the political landscape as a whole which could be consdiered a seperate upheaval.

The question should be whether those facing the biggest changes accept them or throw up barriers in the form of restriction of personal rights, censorship, denial of information, draconian represion, bribes, shutdown of services or PR whitewashes. Perhaps it is just that the internet/computer evolution has finally reached the top of the pile to effect its changes.

I agree with almost all of this. I will leave it to the academics to parse the phenomenon. I would not expect a rise in censorship, however. It just takes a while before the average person can put a new onslaught of information into the correct context after being initially overwhelmed.

Has the development of the internet/IT/communications complex actually facilitated the dissemination of previously inaccessible and valuable knowledge to the “masses”? While there is a lot of “real time information” flow very little of it is particularly “valuable” (e.g. twitter) and is more appropriately described as “noise”.
Consider the explosion of information flow related to “financial markets”. Despite real time availability of every quote, event analysis, trend lines, macro data point, etc. the real drivers of market prices remain hidden and available only to a chosen few insiders. Just one recent example: The ~ 600 point rally in DJI in the last 1/2 hour of 10/4/11. Is there any question that this activity was the result of a decision made by a very small group (~50 people) with access to information and analytic tools created by and available only to them? The opacity of derivatives and the associated leverage and the exposure on bank (including central banks) balance sheets are another example. The markets are only one example of how the internet/technology complex has led not to the broad dissemination of relevant, high information content, useful knowledge in context, but to the absolute concentration, hoarding and manipulation of that knowledge(power) with monumental impact on the financial health and structure of every society and person on the planet.
Is there a “Government Put” in place on the equities markets?
Who knows what they pray in the shadows of the churches? Who knows the secrets of the (central Bank) Temple?

The whole point is that the majority of the new information is NOT useful. The base info (PE ratios, etc) reach more people who are free to interpret for themselves. For every Luther there are 400 Flaggellants or pther cultists who do not have the experience to handle the input. That is the source of the mess/volatility.

You might enjoy Neal Stephenson’s Baroque Cycle (literature, not music). Intersections of the Royal Society, foundations of modern markets, global trade and currency trading. Enlightening and very amusing.

Technical note: “machine language”, the actual bits themselves, was only written in the earliest days. The term is often confused with “assembly language” (http://en.wikipedia.org/wiki/Assembly_language), in which one line of code,
ADD r1,r2 (add contents of register 2 to register 1),
translates directly to one machine instruction (opcode and operands). This is the lowest-level language used by programmers.